Apollo Tyres Ltd. Q4FY24 Result Update

Headquartered in Gurgaon, India, Apollo Tyres Ltd has been in the business of manufacture and sale of tyres since its inception in 1972. Over the years, the company has grown manifold, extending its footprint across the globe.

The company has a manufacturing presence in Asia and Europe with 7 modern tyre facilities. It also exports to over 100 countries. Powered by its key brands — Apollo and Vredestein, the company offers a comprehensive product portfolio spread across passenger car, light truck, truck-bus, off highway and two-wheeler tyres, retreading material and retreaded tyres.

Result Highlights

Apollo Tyres Ltd. (ATL) delivered a strong operating performance in Q4FY23. This was mainly driven by sequential revenue growth in the APMEA division, lower tax provisions, and a favorable raw material cost environment.

Although overall revenue declined by 2.7% compared to the previous quarter, it increased by 12% compared to the same period last year, primarily due to a reduction in revenue from the European business. The company saw a significant improvement in consolidated EBITDA margin as compared to the previous quarter. The effective tax rate was lower as compared to 31.1% in Q3FY23.

As a result of the strong operating performance and lower tax provisions, the profit after tax increased by 40%, amounting to Rs. 409 crores. Despite the weak revenue performance for the third consecutive quarter, both the European business and APMEA business reported an expansion in EBITDA margin, reaching 18.1% and 15.9% respectively.

Valuation and Outlook

In the future, Apollo Tyres Ltd. (ATL) aims to maintain higher margins by focusing on improving its product mix with more premium sub-brands and larger-sized tyres. Over the next two years, the company plans to follow a strategy with limited capital expenditure and instead focus on maximizing capacity utilization by removing bottlenecks.

The company’s main goals are to achieve higher return ratios and increased margins. Although ATL has been gaining market share in Europe, the management expects a slow market in the near term but hopes for a recovery in the second half of FY24. ATL has been successful in passing on costs to customers while maintaining growth. Overall, we anticipate that ATL will benefit from its strategy of leveraging operations, reducing debt, and effectively managing costs in the future.

Key Concall Highlights

Indian Business:

1. In the Indian business, growth was driven by increased sales for original equipment manufacturers (OEMs) and an improved product mix.
2. Although no price hikes were implemented in Q4FY23, earlier price increases by ATL and lower raw material costs contributed to its operational performance.
3. The replacement demand has started to recover, and the management expects high single-digit to low double-digit growth in FY24.
4. ATL gained market share in the truck and bus radial (TBR) segment, but the passenger vehicle (PV) tire segment did not perform as well.

European Business

1. Despite a 13% decrease in the passenger car and light truck tyre (PCLT) market, ATL managed to increase its market share by 50 basis points (0.5%) compared to the previous year. In addition, it gained 90 basis points (0.9%) more market share in the off-highway tyre (OHT) segment.
2. ATL’s product mix in Europe remained strong, with the ultra-high-performance (UHP) and ultra-ultra-high-performance (UUHP) tyres accounting for 43% of its PCLT sales volume.
3. ATL’s main focus is on maintaining a high EBITDA (earnings before interest, taxes, depreciation, and amortization) margin, which is a measure of profitability

Capex:
In the upcoming financial year, the company has planned to invest Rs. 1,100 crores for capital expenditure (capex). However, it’s important to note that the majority of this amount will be used for maintenance, debottlenecking (improving operational efficiency), and research and development (R&D) activities, rather than for expansion purposes.
Out of the total capex, Rs. 680 crores will be allocated to the Indian business, while the remaining amount will be dedicated to the European business.

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Read more about the other results declared in Q4